Neoliberal Debt Policy and the Loss of Autonomy

On 1 October 2019 Marek Mikuš started his position as head of an Emmy Noether Research Group at the MPI for Social Anthropology. The project, which is funded by the German Research Foundation (DFG), is titled “Peripheral Debt: Money, Risk and Politics in Eastern Europe” and looks at how increasing indebtedness affects households in Eastern Europe. We talked with him about the importance of studying this topic and how he became interested in it.

Marek, in a nutshell, what is the overall issue that you will be investigating?
The liberalization of financial markets since the 1970s led to a fundamental transformation of the capitalist economic system. It unleashed a global process known as financialization, which means a growing power and prominence of finance in the wider economy and society. A part of this process was a deregulation of lending to households at the same time as neoliberal policies brought about a stagnation of real incomes and retrenchment of the welfare state. All of this led to a dramatic increase in household debt. We plan to study the specific ways in which this process has occurred in the formerly socialist countries of Eastern Europe, where there was previously very little household debt, as well as the ways in which indebtedness affects people’s lives and is being dealt with by individuals, regulators, and social movements.

But hasn’t the topic of financialization been studied a lot already?
It’s true that there is an extensive body of literature on the subject. But as yet there has been relatively little research into the ramifications of financialization for ordinary people and, particularly, what it means for them to grapple with the risks that come with debt. Other aspects that haven’t been studied are the political consequences of growing indebtedness.

Tell us more about these political consequences.
Well, some of the resistance movements stimulated by the effects of financialization are well known – for example, Occupy Wall Street or the Spanish organization PAH (Platform for People Affected by Mortgages). But there are also many other movements and organizations that contest debt in various ways and are much less documented in the scholarship. The ambition of this project is to understand the politics of debt in its diversity.

And why have you chosen Eastern Europe as particularly significant for your project?
If one compares the recent experiences with household debt in European economic cores and peripheries, one can see that debt booms tended to be particularly prominent and have especially harsh consequences in the periphery. For this reason the focus of our research will be on Croatia, Hungary, Poland, and Slovakia – four Eastern European countries that share this kind of experience.

Might the debt problems be due in part to the socialist past of these countries – i.e., because people lack experience with loans and other financial products?
It is surely the case that some people who have high amounts of debt today were unable to accurately assess the risks when they took out the loans. But in many cases the enormous risks they took on along with their debt were actually concealed from them. For East European debtors the main problem is that their creditors passed on all the financial risks to them, so that they bear the entire burden of things like fluctuations in interest and currency value. Many debtors, for example, did not get adequate explanations of what they were getting into when they took out a loan in Swiss francs and had to pay it back in their own country’s currency. Between 2011 and 2015 the value of the Swiss franc rose substantially in comparison to Eastern European currencies, and as a result the amount of debt has significantly increased also.

What do people usually use the loans for?
Most of the time the loans went towards financing the purchase of an apartment or a house. Governments encouraged the acquisition of residential property by offering subsidies and tax exemptions, there was a housing construction boom, prices rose – and then the bubble burst with the financial crisis of 2007/2008 and prices plummeted. One consequence of this is that the amount of debt of some households came to exceed the value of their loan-financed houses, which prevented them from liquidating the debts by selling their property.

But isn’t this the result of a choice? Nobody is required to purchase residential property and thereby take on the risks connected with loans.
We mustn’t forget the tremendous amount of advertising and incentivizing behind the housing market. Buying property was made terribly appealing, and many people were poorly advised or were subject to outright deception. Furthermore, in Eastern European countries, there aren’t really good alternatives to buying. There is almost no public housing left and the private rental markets are small and poorly regulated.  So sometimes people are indeed essentially forced to take out a loan merely in order to have a decent and stable place to live. But the prices for residential property have become very high – for example, in Bratislava the price per square metre is about twice as much as a typical monthly salary.

Are politicians attempting to do anything to protect citizens from the effects of financialization and over-indebtedness?
There are efforts, yes. But they are mostly directed at the individual level. For example, education programmes are being introduced to help people learn to manage their finances better and more responsibly. But this just shifts the burden of responsibility for the structural deficits of public policies and business practices, and it does nothing to solve the underlying problems.

In other words – people in debt have only themselves to blame, and they need to learn how to economize better?
Yes, this is the message implied by such initiatives. Of course every individual is responsible for how they deal with financial products. But these measures distract us from the fact that it was state policies, such as liberalization of the financial markets or privatization of housing, which produced the preconditions for the enormous increase in household debt in the first place.

So how do people deal with  situations of over-indebtedness?
They often prioritize repayment even at the cost of drastic reduction of consumption and changes in their living habits, especially if they’re threatened with a loss of their home. Many people borrow money or receive help from relatives. Some  turn to various actors, such as lawyers, activists, or legal aid offices, which mediate between lenders and debtors in various ways. And some choose to declare personal bankruptcy, which however is a challenging and unpleasant process. In general, people experience over-indebtedness as humiliating and a loss of autonomy.

What are the consequences of this loss of autonomy for society as a whole?
One immediate consequence has been a resurgence of debates about morals and social justice in the context of neoliberal capitalist economies. The further, concrete effects of the situation are a topic of our empirical investigation, which aims to determine how the growing indebtedness and its politicization affect relations between the state, economy, and civil society. We are also interested in tracing the discourses about what sort of society we want to live in in the context of the debt crisis.

What happens now? What are your next steps?
The first year of the project will be focused on publishing the results of my earlier research on household debt in Croatia, hiring two doctoral students for the research group, and conducting my own follow-up fieldwork in Croatia. The research group should become operational in Fall 2020 and we will then go on to develop and carry out our individual research projects on household debt in Hungary, Poland, and Slovakia, which will involve one year of fieldwork in each of these countries.